Thu, 08/05/2014 - 12:02
First Trust Advisors is planning to launch an actively managed exchange-traded fund (ETF), the First Trust Managed Municipal ETF, on the NASDAQ Stock Market on 15 May.
The fund seeks to generate current income that is exempt from regular federal income taxes. Long-term capital appreciation is a secondary objective.
Under normal market conditions, the fund will seek to achieve its investment objectives by investing at least 80 per cent of its net assets (including investment borrowings) in municipal debt securities.
The fund is managed by First Trust using a disciplined approach that focuses on a combination of quantitative analysis and fundamental research.
Recent tax increases have boosted the demand for tax-exempt investments. At the same time, some municipalities have been facing increasing economic challenges, raising the importance of active credit analysis and municipal bond expertise. Unlike index-based ETFs that may simply rely on rating agencies for credit analysis, First Trust believes it is critical to understand an issuer’s ability to meet its financial obligations. Active portfolio management allows the fund managers to make portfolio adjustments, as necessary, as conditions change. FMB provides access to a portfolio of primarily investment grade municipal bonds, while offering daily liquidity and full transparency of holdings and pricing.
The First Trust municipal securities team, the fund’s portfolio management team, sees ample opportunities in municipal bonds. In their view, credit fundamentals are improving for many municipal bond issuers and taxable equivalent yields are attractive relative to other fixed income asset classes. Given the potential for rising interest rates as a result of stronger economic growth, they believe that in the current market, positioning the fund along the intermediate portion of the yield curve, coupled with including bonds with lower investment grade ratings, provides investors less interest rate sensitivity than longer duration portfolios.
Tax-exempt municipal bonds may provide significant tax savings for certain investors. Historically, risk-adjusted returns of tax-exempt municipal bonds have been attractive when compared to other major asset classes on a taxable equivalent yield basis. In addition, returns of municipal bonds have historically had a low correlation to other asset classes. First Trust believes these factors make tax-exempt municipal bonds an asset class investors should consider as part of a well-diversified portfolio.
Johnathan N Wilhelm, senior vice president, and Tom Futrell, senior vice president at First Trust, serve as senior portfolio managers of the fund. The two will share responsibilities for the day-to-day management of the fund’s investment portfolio.
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